Reserve ratio cut to support real economy

Source: Xinhua | 2019-05-08

CHINA’S latest move to cut the reserve requirements for rural commercial banks will lend support to the real economy, analysts said after the People’s Bank of China’s announcement early yesterday.

The cut will be effective from May 15, the central bank said.

The RRR for small and medium-sized lenders with total assets below 10 billion yuan (US$1.47 billion) will be lowered from around 11.5 percent to 8 percent, the same level as rural credit unions, the People’s Bank of China said.

The favorable ratio will apply to the rural commercial banks that only operate in its county-level administrative area, or those banks that have branches in other county-level administrative areas but only have asset size within 10 billion yuan, the statement said.

The PBOC estimates that about 1,000 county-level rural commercial banks will benefit from the cut. And the policy is projected to inject a total of 280 billion yuan liquidity into the market, which will be lent to micro and small enterprises and private companies.

The move follows a recent call from China’s State Council to lower the funding cost for small firms and lend more financial support to the real economy, Japanese investment bank Nomura said yesterday.

At a Council meeting on April 17, Chinese Premier Li Keqiang reiterated his call to resist a scattergun approach to monetary easing but called for more flexible monetary policy tools to spur lending to privately owned businesses.

Last month, the PBOC reaffirmed its neutral monetary stance and chose to use the lower-profile targeted medium-term lending facility to inject liquidity.